This document discusses the disconnect between investor sentiment and market performance from 2009 to present. While investors have remained fearful of economic risks and the next crisis, the S&P 500 and other global markets have generated strong returns. This is largely due to surging corporate profits in the recovery from the financial crisis. However, investor confidence continues to decline as they focus on macroeconomic risks.

1. The Great Disconnect
2016
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2. March 9, 2009 – The Bottom Was In

3. Cash Flows Out of Equities into Bonds Unabated
Source: ICI (excludes MMKT) – Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Note: Data for funds that
invest primarily in other mutual funds were excluded from the series. Components many not add to the total because of rounding.
-229
-2 -24
-129 -153
160
25
-76
428
30
371
232
118
306
-71
44
-27
1003
-$600
-$400
-$200
$0
$200
$400
$600
$800
$1,000
$1,200
2008 2009 2010 2011 2012 2013 2014 2015 Total
Equity
Bonds
$B
U.S. Industry - Net Mutual Fund Cash Flows

4. As They Relentlessly Focus On Macro Economic Risks
No **** Way

5. But Investor Confidence Continues To Decline

6. On A Constant Fear Of The Next Crisis
> “George Soros says U.S. Banks ‘basically insolvent’”– Reuters, April 6th, 2009
> “Fed to buy $600 billion in bonds to aid economy” – Toledo Blade, March 11th, 2010
> “Debt crisis unsettles European economy” – The Washington Post, February 9th, 2010
> “Fears grow over length of U.S. job crisis” – Economic Times, December 3rd, 2010
> “Obama: Raise debt ceiling or risk global recession” – Bloomberg, April 15th, 2011
> “United States of America [Credit] Rating Lowered to ‘AA+’ due to Political Risks, Rising
Debt Burden” – Standard & Poor’s, August 5th, 2011
> “Occupy Wall Street: Civil society’s awakening” – LA Times, November 22nd, 2011
> “U.S. approaches ‘fiscal cliff’ and world watches from the sidelines” – The Washington
Post, November 2nd, 2012
> “Five years after Lehman, Americans still angry at Wall Street” – Reuters, September 15th,
2013

7. The Great Disconnect
Total Return from March 9, 2009
*MSCI World
133.4%
Source: Bloomberg, In Canadian Dollars to December 31, 2015
S&PTSX
110.0%
S&P500
272.2%
*MSCI Europe
105.6%
(*MSCI World / Europe Price only)

8. The Hedge Fund Disconnect
Source: arborresearch.com

9. The Most Hated Bull Market in History
Chart 1: Sell Side Consensus Indicator (as of 29 February 2016)
Source: BofA Merrill Lynch Global Research US Equity & Quant Strategy
Note: Buy and Sell signals are based on rolling 15-year +/- 1 standard deviations from the rolling 15-year mean. A reading above the red line indicates a Sell signal and a
reading below the green line indicates a Buy signal.

10. Essentially The Macro Market Flux Capacitor Failed

11. The Fallacy of Forecasts
-1%

12. How That Contributed To The Wealth Effect

13. So Why Have Global Markets Performed So Well

14. Corporate Profits Have Exploded Since 2009
-75%
+198%
-49%
+92%
-29%
+238%
-18%
+58%
-22%
+19%
-12%
+94%
-13%
+78%
-16%
+100%
-19%
+103%
-23%
+179%
-22%
+109%
-46%
+130%
-100%
-50%
0%
50%
100%
150%
200%
1929-32
1933-37
1937-38
1938-41
1941-46
1946-50
1950-52
1952-56
1956-58
1958-59
1959-61
1961-69
1969-70
1970-74
1974-75
1975-80
1980-83
1983-89
1989-91
1991-00
2000-02
2002-07
2007-09
2009+
S&P 500 EPS Cycles
•Median EPS increase over 11 expansions: +100%
• Average EPS increase over11 expansions : +115%
Source: IGIM, UBS, NBER

15. Corporate Profits Ultimately Drive Equity Prices
0
20
40
60
80
100
120
0
500
1000
1500
2000
Q1-1964
Q1-1965
Q1-1966
Q1-1967
Q1-1968
Q1-1969
Q1-1970
Q1-1971
Q1-1972
Q1-1973
Q1-1974
Q1-1975
Q1-1976
Q1-1977
Q1-1978
Q1-1979
Q1-1980
Q1-1981
Q1-1982
Q1-1983
Q1-1984
Q1-1985
Q1-1986
Q1-1987
Q1-1988
Q1-1989
Q1-1990
Q1-1991
Q1-1992
Q1-1993
Q1-1994
Q1-1995
Q1-1996
Q1-1997
Q1-1998
Q1-1999
Q1-2000
Q1-2001
Q1-2002
Q1-2003
Q1-2004
Q1-2005
Q1-2006
Q1-2007
Q1-2008
Q1-2009
Q1-2010
Q1-2011
Q1-2012
Q1-2013
Q1-2014
Q1-2015
S&P 500
EPS
Source: IGIM, UBS, Bloomberg

16. Today’s Headlines Revolve Around Oil

17. 38 Years Ago – We Were Running Out of Oil
“World oil production can probably keep going up for
another six or eight years. But, sometime in the 1980’s
it can’t go up much more. Demand will overtake
production.”
Nationally Televised Speech, April 18, 1977

18. And Today We Have Too Much – Drill Baby Drill!
Source: arborresearch.com

19. The Oil Price Collapse in Perspective
19

20. This Chart Could Well Determine The Future Price
of Oil

21. If I Had A Million Dollars ... I’d Be Rich (Wouldn’t I?)

22. The Stock/Bond Valuation Disconnect
U.S. 10 Yr Bond – S&P 500 CDN 10 Yr Bond – S&P TSX
Source: IGIM, as at January 15, 2016

23. Expansion S&P500
increase %
expansion
# of 15%
corrections
during
expansion
# of 8%
corrections
during
expansion
2009+ + 190% 2 10
2001 - 2007 + 105% 1 5
1990 - 2000 + 415% 1 9
1983 - 1990 + 247% 1 15
1975 - 1981 + 126% - 7
1970 - 1973 + 73% - 2
1960 - 1970 + 107% 2 6
1957 -1960 + 56% - -
1953 - 1957 + 117% - 2
1948 - 1953 + 93% 3 5
Average Cycle + 149% 1 6
Source: IGIM, NBER, Bloomberg
15%+
corrections
- 2012
- 2011
- 2003
- 1998
- 1987
- 1966
- 1962
- 1950
- 1949
- 1947
*1981 Double-dip
8%+
corrections in
2009 cycle
- 2009 x 1
- 2010 x 3
- 2011 x 3
- 2012 x 2
-2015 x 1
Corrections are a Normal Part of the Cycle

24. What You Do Here Will Largely Determine Your
Success
S&P 500 Intra-year Declines vs. Calendar Year Returns
Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management
26
-10
15 17
1
26
15
2
12
27
-7
26
4
7
-2
34
20
31
27
20
-10
-13
-23
26
9
3
14
4
-38
23
13
0
13
30
11
4
-17 -18
-17
-7
-13
-8 -9
-34
-8 -8
-20
-6 -6 -5
-9
-3
-8
-11
-19
-12
-17
-30
-34
-4
-8 -7 -8 -10
-49
-28
-16
-19
-10
-6 -7 -13
-60
-50
-40
-30
-20
-10
0
10
20
30
40

25. Probability stock fell since you last checked
If you check the value of your portfolio...
47%
44%
40%
28%
20%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Daily Weekly Monthly Yearly Each Decade
Source: Source S&P 500, March 4th, 1957-Present

26. The Seventy Per Cent Advantage
S&P500 Total Return Ranges 1926-2015
‘14
'12
'10
'04
'15 '93 '09 '13
'00 '11 '88 '03 '97
'90 '07 '86 '99 '95
'81 '56 '79 '98 '91
'77 '94 '72 '96 '89
'69 '92 '71 '83 '85
'62 '87 '68 '82 '80
'53 '84 '65 '76 '75
'46 '78 '54 '67 '55
'01 '40 '70 '59 '63 '50
'73 '39 '60 '52 '61 '45
'02 '66 '34 '56 '49 '51 '38 '58
'08 '74 '57 '32 '48 '44 '43 '36 '35 '54
'31 '37 '30 '41 '29 '47 '26 '42 '27 '28 '33
-40% to -
50%
-30% to -
40%
-20% to -
30% -10% to 20% 0% to -10% 0 % to 10% 10% to 20% 20% to 30% 30% to 40% 40% to 50% 50% to 60 %